If you’re in the middle of a divorce and your spouse is preparing a joint income tax return, remember that even though you’re splitting up, you’re still jointly responsible if you sign the return and your spouse has done something wrong.
In a recent case, a couple was still married but living separately with separate checking accounts and credit cards. The husband prepared the couple’s joint tax return and gave it to the wife to sign. She checked to see if her information was correct, but didn’t question his items on the return.
When the IRS examined the return, it determined that the husband had failed to report about $12,000 in income and hadn’t paid enough tax on an IRA distribution. Because both spouses had signed the return, it demanded more money from both of them.
The wife argued that she shouldn’t have to pay anything because she didn’t know that the husband had improperly reported his own income.
The U.S. Tax Court eventually sided with the wife. It said that both spouses are ordinarily responsible for a joint return, but it would make an exception in this case because the husband had a history of being evasive and not telling the wife about his finances, and because he gave her the return to sign on April 15 so she had virtually no time to investigate.
So the wife won, but other spouses in other cases might not be so lucky. And even though the wife won in this case, she still had to go to court and spend years fighting the government in order to avoid the extra taxes and penalties.
So the moral of the story is to be careful and look closely at any tax returns before you sign them. If you have any questions, seek outside advice.